Having just entered the euro zone, the Estonian kroon will be replaced by 194 million euro coins and 45 million bank notes. The process will take 2 weeks as the new currency replaces the old. Here are some pictures of Estonian euro coins and a picture and history of euro banknotes.

To be accepted, Estonia had to pass the “euro” test. Composed of five categories, the test focuses on euro zone targets for 1) inflation, 2) the deficit, 3) debt, 4) long-term interest rates and 5) exchange rate stability requirements. Estonia gets high marks for her debt (8% of GDP) and deficit (1% of GDP) but a lower grade for inflation (10.8% during 2008).

Fully aware of euro zone problems, Estonia says it wants to join as nation #17 because alone, it is too small to have its own monetary policy. As its finance minister said, “It is a small step for the euro zone and a big step for Estonia.” (A slightly familiar quote)

According to Dr. Econ at the San Francisco Federal Reserve, households are demonstrating austerity by saving more and borrowing less. On the one hand, living within our means is good. But on the other, called the paradox of thrift, when everyone spends less, the economy tends to contract.

Finally, just mention government borrowing and the word austerity pops up. Greece needs to cut back. Ireland needs to cut back. German austerity should be copied. As for the U.S., though, austerity was synonymous with debate. On the one hand, continuing to increase the deficit can mean unmanageable debt and future inflation. But on the other hand, cutting back too much, too soon, could reverse our economic recovery.

The Economic Lesson

Our last economic lesson of 2010 returns us to Harry Truman saying, “Give me a one-handed economist. All my economists say, “On the one hand…on the other…”

Just a comment today on a study about females and competition. Comparing a matrilineal society in India to a patriarchal society in Tanzania, a 2007 study revealed a huge difference in how much women compete.

These quotes are wonderfully representative:

From a Khasi man in India where women dominate:

“We are sick of playing the roles of breeding bulls and baby-sitters.”

From a Maasai woman in Tanzania where men dominate:

“Men treat us like donkeys.”

Empirically, the study concluded that Maasai men and Khasi women were more likely to compete.

The Economic Lesson

Other studies we have cited focus on the conflict between the workplace and the family as a primary source of the gender gap in salary and promotion. Similarly, this 2010 paper for OECD nations sums up gender gap data in traditional categories.Now, we should add the culturally nurtured disinclination to compete as another factor that determines a woman’s success at work.

In a New Yorkerarticle, journalist John Cassidy suggests that China’s combination of authoritarianism and capitalism is somewhat similar to our own history. Reminding us of our government’s economic intervention during the past several centuries, Cassidy cites free trade, Pentagon spending, and the bailout. In 1791, for example, Alexander Hamilton’s “Report on the Subject of Manufactures” recommended protective tariffs and subsidies to encourage domestic industry. As for the bailout, you know about the 2009 Recovery Act and TARP. Cassidy even suggests that “market authoritarianism” might be a transitional state for the Chinese and Russian economies, with democracy not that far behind. There is a good New Yorkerpodcast on this article.

I have difficulty agreeing with John Cassidy. Yes, we might mislead ourselves if we claim the past was entirely laissez-faire. However, the Heritage Foundation/WSJ’s Index of Economic Freedom and the World Bank’s Doing Business index reveal a huge divide between contemporary China and where a past U.S would have ranked.

Your opinion?

The Economic Lesson

Ever since Hamilton and Jefferson, we have been debating more or less central government. Always though, the decision has not been one or the other. We have had to decide how much. You might look back on this post about David Brooks and Paul Krugman for a perfect recent example of the debate. Also, this Hayek/Keynes rap is excellent.